Rivard Report: U.S., Mexico Agree on Trade Deal, But Future of NAFTA Still Uncertain

The historic trilateral trade deal signed in San Antonio that accounts for $4.2 billion in local exports could be renamed the U.S.-Mexico Trade Agreement, President Trump announced Monday from the Oval Office.

The two countries have come to an agreement on several measures in the ongoing North American Free Trade Agreement (NAFTA) negotiations, even as the provisions exclude Canada for now. The announcement is considered a significant first step toward updating the trade deal that Trump had earlier threatened to terminate.

Speaking with Mexican President Enrique Peña Nieto as reporters listened, Trump said, "This makes it a much more fair bill and we are very excited about it. We have worked long and hard. … It's an extremely complex bill, and something that will be talked about for many years to come."

Monday's deal sets the stage for a final agreement that includes Canada, but a top IBC Bank official warns there will be political obstacles to overcome.

"Today's announcement is, of course, an extremely positive development," said Gerry Schwebel, executive vice president of IBC Bank's Corporate International Division and a member of the U.S.-Mexico Economic Council, an initiative of the U.S. Chamber of Commerce.

Negotiators from both countries have reportedly reached an agreement on rules for how cars and tracks are manufactured in North America, among other critical provisions that some say will move the ongoing negotiations toward conclusion.

Among the provisions agreed upon is one that requires a significant portion of cars and trucks sold in the U.S. be produced in high-wage factories inside this country and Mexico. The deal states that 75 percent of auto content must be made in the U.S. and Mexico, up from 62.5 percent.

It would require 40 percent to 45 percent of auto content be made by workers earning at least $16 per hour. Auto manufacturers must also use more local steel and aluminum or face steep tariffs. U.S. companies importing vehicles produced mostly in Mexico will pay a 2.5 percent tariff.

Reaction from San Antonio's leaders and business community was cautiously optimistic.

"We need to see the details, but the preliminary reports look promising," said Mayor Ron Nirenberg. "We want to see how our industry partners react to the new framework. I look forward to seeing Canada returning to the discussions to complete a trilateral deal."

A study by Steve Nivin, chief economist with the San Antonio Hispanic Chamber of Commerce‘s SABER Research Institute, shows that increased trading activity due to NAFTA has added $10.6 billion to the San Antonio economy.

"San Antonio's largest trading partners, Mexico and Canada, account for over $4.2 billion in San Antonio exports and support many of the over 63,000 export related jobs in this community," the San Antonio Economic Development Foundation said in a prepared statement. "Our globally connected business community has benefitted greatly from NAFTA and we are hopeful that the new trade agreement with Mexico will spur momentum towards an agreement that also includes Canada."

San Antonio Chamber of Commerce President and CEO Richard Perez stated he is "beyond delighted" the U.S. has reached an agreement with Texas' most important trading partner.

"With 63,000 jobs in San Antonio directly tied to NAFTA and 135,000 jobs indirectly tied to it, NAFTA is crucial to the continued growth and success of our city, our growing industries, and our economy," Perez said.

U.S. Rep. Lloyd Doggett (D-San Antonio), who serves on a House Trade Subcommittee, responded to the announcement by saying he is reviewing details of the agreement and talking with trade representatives.

He said that while he is pleased the agreement excludes seasonality language that would have been harmful to H-E-B and consumers of Mexican produce, the improved North American agreement cannot be finalized without Texas' No. 2 trade partner, Canada.

"Nor can we have a true 21st-century NAFTA without better implementation and enforcement mechanisms than currently exist," Doggett stated. "Canada is particularly important in the auto, aircraft, and electronics manufacturing supply chains, and in timber for local homebuilders and newsprint for publications."

Antonio Garza, former U.S. ambassador to Mexico, called the deal a significant step in renegotiating NAFTA, a process that began over a year ago.

"But I wouldn't be popping any corks, or not yet, anyway," he told the Rivard Report.

Former U.S. Ambassador to Mexico Tony Garza speaks in a panel at NAFTA 2.0: The Future of North American Trade at St. Mary's University in September 2017.

"What's not clear is the status of Canada and what the ‘remaining issue' alluded to by [Mexico's Secretary of the Economy Ildefonso] Guajardo might be. That and approval from the countries' respective congresses, one of which will involve significant turnover in but a few short days [Mexico], and our own which will be facing midterms in November. Upshot, let's not get ahead of ourselves."

Formal negotiations between the U.S., Mexico, and Canada began last fall, with all three countries meeting regularly to revamp and update the deal.

"This preliminary deal presents us with the opportunity to modernize the trilateral agreement, which has grown trade between the United States, Canada, and Mexico from $290 billion in 1993 to over $1.1 trillion in 2016," said U.S. Rep. Henry Cuellar (D-Laredo), in a statement.

"These numbers reflect what I have said all along: NAFTA is an integral part of our economy.

Businesses large and small throughout the country simply cannot function in an environment of unpredictability. They rely on the stability, as provided by this treaty, to grow and remain competitive."

Though Canada has been absent from talks in recent weeks, reports indicate the agreements between the U.S. and Mexico will bring Canada back to the negotiating table to resume the three-way talks. Canada must review the latest solutions before they can be finalized.

A three-way deal needs to be reached by Aug. 31 or Sept. 1, at the latest, in order for Mexican President Enrique Peña Nieto to sign it before leaving office at the end of November.

"Nothing is more important for the Texas economy than solidifying our trade relations with Mexico," said Eddie Aldrete, IBC Bank senior vice president and co-chair of pro-NAFTA group the Texas-Mexico Trade Coalition.

As for overall relations with Mexico, Garza said it's too early to tell whether the latest trade agreements will have a positive effect.

"I think the citizens of both countries have accommodated the reality of the ‘new-new,' which means nothing's final. and today's good feelings are simply that, today's good feelings," he said.